Alameda ponders pension problems

The numbers that crossed the screen looming over the dais in City Council chambers Tuesday night were staggering: Unfunded pension costs of $176.5 million and climbing, driven by investment losses of 24 percent in 2009 and the city’s running failure to pay more than their minimum balance on what’s due.

Annual pension benefits for Alameda’s youngest public safety retirees are now into the six figures, lifted by longer life expectancies, wages that have more than doubled since 1994 and a pension benefit that earns them three percent of their top wage for every year served.

“We can’t duck this any longer,” City Councilman Frank Matarrese said in an interview Friday. “We have a lot of catching up to do.”

The council is set to begin working out a plan to cover its unfunded pension costs during a budget workshop set for Thursday. They have the daunting task of figuring out how to pay skyrocketing pension costs that, in the absence of a gravity-defying market turnaround, threaten to swallow Alameda’s budget whole.

Alameda is far from alone in facing a crisis over pensions. Vallejo famously declared bankruptcy in 2008 in an effort to get out from under its high personnel costs and unfunded retiree health care obligations of $135 million. And a grand jury in San Diego recommended that city consider doing the same, to lift unfunded pension costs of $2.2 billion and retiree health care costs of $1.3 billion.

Others are considering different solutions. The city managers associations of Alameda and Contra Costa counties released a white paper in February that recommended cities consider reduced benefits for new employees and increased benefit payments from those in the existing system.

Like many cities, Alameda sweetened its pension offerings when economic times were good in an effort to attract top talent, increasing the pension benefit for public safety workers to retire at age 50 with 3 percent of their top wage for each year served. Public safety employees also get retiree health benefits that cover any health care plan they choose for themselves and their spouses. Alameda’s unfunded retiree health care costs would add another $75.4 million to the pension amount if the city had to write a check for them today, the same amount of money the city budgeted to cover all of its general fund programs this year.

The city’s other employees can retire at age 55 with 2 percent of their top wage for each year. Their pensions are much smaller because they typically serve in more than one city, spreading those costs out, while public safety workers typically stay in a single city, the city’s actuarial, John Bartel, said Tuesday.

Bartel told the council that they should start paying more into CalPERS than the retirement system requires, and that they should put a two-tiered system in place that would offer a smaller pension benefit to new employees.

But council members wondered where that money would come from in these tight budget times. “To be perfectly honest, I don’t know where we’re going to get the money from,” Councilwoman Marie Gilmore said during an interview Friday.

And they noted that even under the most liberal scenario, the savings generated by a two-tiered system would be a drop in the bucket. Bartel’s analysis showed that setting up a two-tiered pension system would save the city less than $1.2 million a year by 2020.

Domenick Weaver, president of Alameda’s firefighters union, said he thinks the city should adequately pre-fund its pension obligations.

“Had the City initiated its own policy of pre-funding in the good years, it may have minimized the negative impacts of the fluctuations on the bad years,” Weaver said. “The CalPERS system is one of the most fiscally sound models in the world, and the city needs to work with its employees to protect their shared investment in that system.”

6 Comments »

Quoting …”The numbers that crossed the screen looming over the dais in City Council chambers Tuesday night were staggering: Unfunded pension costs of $176.5 million and climbing, driven by investment losses of 24 percent in 2009 and the city’s running failure to pay more than their minimum balance on what’s due.”

Yeah ? … and please tell me that this is not PRIMARILY due to the fact that these PLANS are not ridiculously EXCESSIVE .. 4-6 times what a comparably paid Private sector worker would get if retiring at the SAME age with the SAME years of service.

No, the answer is NOT more taxes, it MUST MUST MUST incorporate a significant reduction in the pension formula (not for PAST, but) for FUTURE years of service for CURRENT (yes CURRENT) workers. For FUTURE years of service, the “factor” per years of service MUST be no greater than 1.5% (1% is fairer to taxpayers) and the earliest payout of UNREDUCED benefits should be no earlier than age 60. Sounds draconian ….. well, 99% of Private sector workers would kill to get even this ! What makes Civil Servants so “special”?

Absolutely NOTHING else will prevent bankruptcy and a failure of the plan … meaning that it will RUN OUT OF MONEY.

>>> “The CalPERS system is one of the most fiscally sound models in the world, and the city needs to work with its employees to protect their shared investment in that system.”

I believe this is exactly wrong. The math says they cannot pay what was promised, and the only way to solve this is to force adjustments that of course pensioners are not going to like. I don’t think it is possible for revenues to rise until the excessive debt is paid down or defaulted.

I spent 20 years as a pension actuary (not ‘actuarial’), and could see this happening from miles away – the culmination of decades of making absolutely unsustainable fiscal pension promises, knowing that the horrific consequences would not be visible for years down the road. Dumping vacation and sick pay plus overtime into the final year of covered compensation, granting phony one-day promotions to kick one up into a higher pension bracket, has landed us in this situation along with countless other CA municipalities. CALPERS is not well funded. It is in the same precarious financial situation. The prefunding argument is nonsense. By definition you can’t prefund spiked pensions – they wait until before retirement to inflate the pension under unconscionable – yet inexplicably legal – means. Even if you could anticipate the spiking during one’s active career the contirbutions required would have been outrageously high, and unacceptable. Which is why they chose this route – to hide the actual cost until it became too late.

The professions of firefighters and policemen are valiant, and they are courageous – but statistically no more so than at least a dozen other professions. However, the unavoidable fact is that there is one solution, and one solution only. We MUST CUT BACK on pensions currently and soon to come into payment status. There is absolutely – absolutely – no other way. Otherwise all tax revenues will be siphoned into these astoundingly common 6-figure pensions that will be paid for decades on end, with no funds left over for basic services. Hopefully our leaders come to this conclusion as soon as possible. Meanwhile, I’ll have to start scanning the Wyoming real estate listings.

I’m planning to retire in 5 (or fewer) years. Unfortunately, I’m not a federal, state or city employee. Consequently, I’m always on the look-out for ways to make my retirement dollar go farther. One of the ways I’m (very) seriously considering is moving to a state with no income tax. Yeah, life in the Bay Area is grand, but getting less so by the day. And, the US is a big country, and I’ve still got lots of places yet to see. So, as advance warning, don’t count on me to help bail out the sorry state of state and local finances with higher taxes.

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